Silver Prices Stuck Between Hawkish Fed and Weakening Industrial Demand

The Federal Reserve's decision to keep interest rates unchanged has left silver in an awkward position. The Fed's 9-3 vote showed that there is pressure for tighter policy, even if officials chose not to act immediately.

Silver must contend with its exposure to manufacturing, leaving the price sensitive to both borrowing costs and industrial demand. The Silver Institute expects global industrial fabrication to decline 2% this year to about 650 million ounces, a four-year low.

The weakness is expected to be concentrated in the solar industry, where manufacturers are reducing the amount of silver used in each panel and substituting other materials where possible. This trend weakens one of the strongest arguments behind silver's earlier rally.